Commercial Real Estate Crowdfunding Eyes ’18-Hour Cities’ for Small Investors

When Clear Point Gardens, a 604-unit apartment complex in Columbus, Ohio, recently changed hands, it produced a nearly 43% gain in 16 months, an amazing windfall for investors in the deal.

All 68 of them.

The sale of Clear Point, financed with help from investors on CrowdStreet’s online platform, is the latest example of how online syndication is revolutionizing the way deals are financed in the $6 trillion commercial real estate market.

Online syndication is opening up potentially lucrative investment opportunities once the province of a privileged few. And deal choice has expanded beyond what even the wealthiest could have only dreamed back when real estate investing was solely a word-of-mouth game confined to the country-club elite. These days, the average investor can explore dozens of deals, from the ground-up development of new office buildings to the acquisition of apartment complexes.

CrowdStreet’s focus is to find deals in up-and-coming "18-hour" cities like Columbus and Portland, Ore. These cities are sizable, high-growth metro areas with lots of potential, but that are smaller in size and media attention than America’s "24-hour" urban areas like New York, Los Angeles, San Francisco, Boston and Washington, D.C. The 18-hour cities can often offer individual investors better returns than they’d find in the "24-hour" mega-metros.

A Record of Strong Returns

Launched in 2014, CrowdStreet runs the leading online marketplace through which individual investors can seek the rewards of investing in a wide array of commercial real estate projects — everything from multifamily apartment buildings to hotels to office buildings.

Earlier this year, CrowdStreet crossed $525 million invested by thousands of investors from 42 states across the country. More than 300 real estate firms — from developers seeking financing for new projects to companies that specialize in improving or managing existing buildings — have syndicated their deals on CrowdStreet.

The results so far have been more than solid. The average return on the first 14 deals to exit on CrowdStreet’s platform is more than 29%, with a 1.6x equity multiple and a holding period of just 2.1 years.

Investors can pick and choose deals based on their financial goals and their level of risk tolerance. Ground-up projects such as new office or apartment buildings can generate returns as high as 25% IRR.

On the other end of the spectrum are real estate firms looking to raise capital to buy existing assets such as apartments, retail or office buildings. These deals typically offer earlier cash flow, but lower returns in the mid-teens, said Tore Steen, CrowdStreet’s CEO.

And CrowdStreet has also developed a passive index-style investment option — the CrowdStreet Blended Portfolio — for investors seeking broader diversification. Instead of a basket of stocks, investors get to spread their cash over 30 or more different deals or projects with a single investment.

"It removes the learning curve for someone without commercial real estate investing experience," Steen said.

A Focus on Fast-Growing ’18-hour’ Cities

In the hotly competitive commercial real estate market, one challenge facing investors today is access to high-quality, attractive deals. CrowdStreet takes a unique approach to capitalize on markets that often go overlooked.

CrowdStreet’s geographic sweet spot is the 18-hour cities noted above. With their lower cost of living and lower cost of doing business, cities like Columbus (home to one of CrowdStreet’s best-producing deals), Dallas, San Antonio, Portland, Denver, Nashville and Salt Lake City have become magnets for millennials and young professionals. Many employers follow, looking to tap into young workers’ talents and provide the services and products that millennials demand in their communities.

For do-it-yourself real estate investors, 18-hour cities also have the advantage of being less pursued by institutional investors. Because huge amounts of capital aren’t competing for these deals, there can be great opportunities for individual investors that they might never see in a typical major market.

Deals in these cities also tend to be more manageable in size when compared to new developments or sales in 24-hour cities, where price tags routinely run in the hundreds of millions or even billions of dollars. By contrast, CrowdStreet’s primary focus on 18-hour cities means that prospective deals and projects listed on the site typically range in size from $10 million to $100 million — with many in the $20 million to $50 million range.

Examples include:

Urban Green Investments financing package for the Burnside, a new 52-unit apartment project in Portland, included $845,000 from 25 investors on CrowdStreet’s platform. They earned a 66.5% annualized return.
SmartCap Group raised $4 million from 67 investors for the South Seattle Business Park, with a 46.3% annualized return for CrowdStreet investors.
Windmill Investments raised $3.25 million from 52 investors for the Diamond Loch Apartments, a 138-unit apartment complex in North Richland Hills, Texas. The deal generated 28.0% annualized return for investors.

"If a city has quantifiable success in attracting millennials with a solid and growing job base yet is more affordable than the 24-hour cities from which they are migrating, that’s a good indication if potential growth," noted Ian Formigle, vice president of investments at CrowdStreet.

To review the current deals on the CrowdStreet Marketplace as well check out as the CrowdStreet Blended Portfolio fund, create a free account at today!

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